Some credit card companies offer their customers the chance to use their credit card as an ATM card. This is called a cash advance. To be more specific a cash advance is a loan taken out against a line of credit or credit card, typically imposing higher-than-normal interest charges.
Often the interest charged on these loans is a fixed number of percentage points above the prime rate. Additionally, there is seldom a grace period in which no interest is charged. These two factors make cash advances more expensive than many other types of debt financing.I say that a cash advance is a shady way for credit card companies to make a quick buck. I did the research and if I were to use a cash advance on my credit card I would be charged $10 for the initial transaction, and interest would immediately begin to accrue. Last time I checked (just now) my credit card company (CHASE) charges me 20.99% for a cash advance. One must keep in mind that 20.99% is compounded daily. I'm going to follow this example with some math so, prepare yourself.
Here is an example. I take out $100, deciding to pay it back after I receive my statement, lets say in 30 days. I would be charged $10 for the transaction, and I would be charged $1.91 interest at the end of the thirty days. So after thirty days I would have to pay finance charges of $11.91. Much higher than your typical ATM fee of $2-5. If I fail to pay the entire cash advance balance I would have to pay even more in finance charges. Were I to pay back the initial $100 ignoring the finance charges I would then have to pay $12.12 i n finance charges. After 60 days I would have paid my bank $12.12 for a cash advance.
Here is the formula I used:
where P is the initial $100, r is the annual interest rate, n is the number of times the interest is compounded a year (365), and t is the number of years (30/365).
Avoid using a cash advance at all costs!